Higher gas price on extra output only: Oil ministry

A higher gas price for the entire current production would mean ONGC’s annual revenues would rise by Rs 12,000 crore and OIL’s by Rs 1,500 crore.

SummaryThe petroleum ministry has proposed that higher gas price as per the Rangarajan formula...

the annual revenue increase would be R3,000 crore.

The Congress-led UPA government had approved a formula devised by then chief of the Prime Minister’s Economic Advisory Council (PMEAC) C Rangarajan, which was to be effective from April 1, but it could not implement it because of an Election Commission order. If applied, the formula would lead to a doubling of the price of domestic gas from $4.2/million British thermal units.

The petroleum ministry is of the opinion that the issue of pricing of gas would need to be seen in the context of achieving the multiple objectives of incentivising domestic gas exploration and production on the supply side and meeting the higher subsidy outgo in successive budgets for the fertiliser and power sectors.

Therefore, the gas pricing need to strike a balance between the requirements of the exploration and production sector and the burden on the government exchequer.

India's natural gas output went down to 35.4 billion cubic metres (bcm) in FY14 from 47.56 bcm in FY12.

“Incentivising by giving higher gas price for incremental production would lead to more focused efforts on the part of contractors for enhancing production in the country. This would be a result-oriented approach, where contractors would also align themselves to the government's objective of enhancing production in the country and will result in lesser dependency on imports,” the draft CCEA note said.

The petroleum ministry has also said that the pricing of gas would be on net calorific value (NCV). This is because historically the gas price in India is based on NCV basis only. In addition, in case the gas price is made on gross calorific value (GCV), it would lead to an additional burden on fertiliser and power companies as it would increase prices by nearly 10%.